GOP warns against TARP spending

Congressional Republicans are warning Democrats not to use surplus TARP funds for anything but debt reduction.

Democrats have floated the idea of using excess Toxic Asset Relief Program funds to extend safety-net programs such as food stamps and to fund transportation and infrastructure spending – provisions that would likely end up in a must-past omnibus spending bill by the end of the year. And President Barack Obama is set to roll out a retooled economic program Tuesday.

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But the idea of paying for such programs with TARP money is eliciting vehement push-back from Republicans, who question its legality.

Particularly, New Hampshire Sen. Judd Gregg, the ranking Republican on the Senate Budget Committee, is pointing to provisions in the legislation mandating that any unused TARP funds go toward reducing the debt. Specifically, the law now says returned funds “shall be paid into the general fund of the Treasury for reduction of the public debt.”

Gregg, a lead Republican author of the TARP bill in the last days of the Bush administration, said the new Democratic suggestions are a “violation of not only the literal law but the intent of what we were doing when we created TARP to begin with.”

TARP shouldn’t be a “slush fund” to pay for the next “stimulus exercise,” he said.

“It can’t be used to build roads. It can’t be used to fund the military. It can’t be used to support NIH [the National Institute of Health]. It can’t be used for any of those things,” Gregg told reporters Monday.

Separately, Rep. Jeb Hensarling (R-Texas) wrote House Speaker Nancy Pelosi (D-Calif.) on Monday, opposing any use of TARP funds other than paying down the debt.

“TARP was never intended to be used as a revolving slush fund to pay for the majority party’s economic or social agenda” Hensarling wrote. “Any unused, or repaid, TARP funds should be returned to those who originally paid for it – the American taxpayers.”

Democrats, though, are likely to be emboldened by recent news that TARP will cost about $200 billion less than originally forecasted.

For instance, the giant Bank of America has announced it intends to pay back $45 billion in TARP money. And the president said on Monday the program has been “much cheaper than we had expected, though not cheap.” Despite their loud opposition, Gregg, Hensarling and other Republicans likely have little recourse to stop the spending. If the majority Democrats want to use TARP funds on infrastructure projects, they have the votes in both the House and Senate to rewrite provisions that would circumvent any previous restrictions on re-appropriating the funds.

“It would be an obscene act of fiscal irresponsibility, but they could very easily do it,” Gregg said.